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Wednesday, 12 March 2014

IATA predicts profitable year for African airlines

The International Air Transport Association (IATA) has forecast that African airlines will post an industry profit of $100m this year, from a loss of $100m in 2013. Tony Tyler, director-general and CEO of IATA, said the continent’s airline industry continued to be plagued by poor infrastructure, high taxes and restrictive market access policies for intra-Africa connectivity. "This is on top of the intensifying competition that the region’s airlines face on long-haul routes," he said.

The association, which represents about 240 airlines, including carriers such as South African Airways (SAA) and Comair, said the global airline industry was on track for a second consecutive year of improved profitability. This was despite it having slightly revised its industry outlook for 2014 to an industry profit of $18.7bn from the previously forecast $19.7bn. My Tyler said this profit, while it appeared large, had to be contrasted with the global industry’s overall revenue of $745bn. "An $18.7bn profit for an industry that generates $745bn in revenues equals an average net margin of just 2.5%. Put another way, the average fare is about $200 (including ancillaries) and airlines will make about $5.65 for every departing passenger. So, running an airline remains a very tough business."

SAA earlier this year reported an operating loss of R425m for the 2013 financial year. In contrast, Comair reported an operating profit of R365m for the six months to December. Comair CEO Erik Venter said at the time of the release of the airline’s results that it was well placed for a better 2014 financial year. This was despite rising fuel costs, driven by a depreciating rand. In its recently released annual report, SAA said its low-cost subsidiary Mango had achieved its highest turnover and profit to date in 2013, reporting revenues of R1.36bn and a net profit of R39.1m.

IATA said the main driver for its downward revision in profits was a higher oil price, which was expected to average $108 a barrel — $3.50 a barrel above previous projections. It said this would result in airlines’ fuel bill going up by an additional $3bn. But this additional cost was likely to be offset by stronger demand, especially for cargo, as the global economic outlook improved. "In general, the outlook is positive. The cyclical economic upturn is supporting a strong demand environment. And that is compensating for the challenges of higher fuel costs related to geopolitical instability," said Mr Tyler.